Payments Bank And All Small Banks

Payment Banks and Small Finance Banks

SMALL FINANCE BANKS

• They cater to deposits and loans particularly in small areas.
• They are meant for financial inclusion of small farmers, MSMEs, and the unorganized sector.
• MFI, NBFC can convert themselves to differentiated small banks if a license is allotted to them.
• 25% rural branching.
• 50% loans to MSME.
• Priority Sector Lending of 40% applies that they need to comply within 3 years of their licensing.
• Cooperative bank can’t apply for license of small banks.
• NRI can apply for licenses.
• Cluster preference for licensing would be for North East.
• They can’t setup subsidiaries.
• They can appoint Business Correspondent Agents but cannot become Business Correspondent Agents of other banks.

PAYMENT BANKS

• Only current and savings account ratio, net banking and debit cards or prepaid cards are allowed.
• FD/Loan is not allowed so the source of their earning would be to invest in Government Securities where they would get an annual interest of around 8%.
• Max balance of Rs.1lakh/customer is allowed.

Similarities

• Minimum Capital required is 100 crore. (Regular bank license requires 500 Crore).
• FDI limits, voting rights are similar to regular commercial banks like SBI, PNB, Bank of Baroda, ICICI etc.

Differences

• Small banks can accept all types of deposits like a commercial bank ( savings, current, fixed deposits, recurring deposits etc).On the other hand Payment banks can take deposits only on current & savings account. These cannot offer credit cards, NRI account, & time deposits (FD& RD).
• Small banks cannot give depositors money as loan to others (big industries), but for small area of operation.    Payment banks cannot give loans but can invest in G securities(as most of the depositors are poor people. so, banks cannot take a risk).
• For small banks, any individual with 10 years of experience in banking can apply for licenses. For payment banks Indian post, telecom companies can apply for licenses.  
• Target for small banks are MSME's, business man. Target for Payment banks are poor people.